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If market interest rates have changed materially since a firm issued a bond, and the firm uses the effective interest rate method, how is a change in the market value of the firm’s debt most likely to be reported in the firm’s financial statements?

A Net income and equity are unaffected, but the change may be discussed in management’s commentary.

Material changes in the firms cost of debt capital should be included in the Management Discussion and Analysis section of the financial statements. If the firm does not use fair value reporting of debt obligations, net income and shareholders’ equity are not affected by changes in the market value of the firm’s debt, and disclosing its gain or loss in market value is not required.

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